PREPARED BY AJI R LAL

HIRE PURCHASE

Hire purchase is a method of selling

goods. In a hire purchase transaction the

goods are let out on hire by a finance

company (creditor) to the hire purchase

customer (hirer). The buyer is required

to pay an agreed amount in periodical

instalments during a given period. The

ownership of the property remains with

creditor and passes on to hirer on the

payment of the last instalment.

Hire purchase is A mode of financing the price of the goods to be sold on A

future date. In A hire purchase transaction, the goods are let on hire, the purchase

price is to be paid in instalments and hirer is allowed an option to purchase the goods

by paying all the instalments A hire purchase agreement is defined in the hire

purchase act, 1972 as peculiar kind of transaction in which the goods are let on hire

with an option to the hirer to purchase them, with the following stipulations

Stipulations Of Hire Purchase Act, 1972

• Payments to be made in instalments over a specified period.

•The possession is delivered to the hirer at the time of entering into the contract.

•The property in goods passes to the hirer on payment of the last instalment .

•Each instalment is treated as hire charges so that if default is made in payment of any

instalment , the seller becomes entitled to take away the goods, and

•The hirer/ purchase is free to return the goods without being required to pay any

further instalments falling due after the return.

FEATURES OF HIRE PURCHASE AGREEMENT

• Under hire purchase system, the buyer takes possession of goods immediately and agrees to pay the

total hire purchase price in instalments.

• Each instalment is treated as hire charges.

• The ownership of the goods passes from the seller to the buyer on the payment of the last instalment.

• In case the buyer makes any default in the payment of any instalment the seller has right to repossess

the goods from the buyer and forfeit the amount already received treating it as hire charges.

• The hirer has the right to terminate the agreement any time before the property passes. That is, he has

the option to return the goods in which case he need not pay instalments falling due thereafter.

However, he cannot recover the sums already paid as such sums legally represent hire charges on the

goods in question.

The Important Clauses In A Hire Purchase Agreement

1. Nature of agreement: stating the nature, term and commencement of the agreement.

2. Delivery of equipment: the place and time of delivery and the hirer’s liability to bear delivery charges.

3. Location: the place where the equipment shall be kept during the period of hire.

4. Inspection: that the hirer has examined the equipment and is satisfied with it.

5. Repairs: the hirer to obtain at his cost, insurance on the equipment and to hand over the insurance policies

to the owner.

6. Alteration: the hirer not to make any alterations, additions and so on to the equipment, without prior

consent of the owner.

7. Termination: the events or acts of hirer that would constitute a default eligible to terminate the

agreement.

8. Risk: of loss and damages to be borne by the hirer.

9. Registration and fees: the hirer to comply with the relevant laws, obtain registration and bear all

requisite fees.

10. Indemnity clause: the clause as per contract act, to indemnify the lender.

11. Stamp duty: clause specifying the stamp duty liability to be borne by the hirer.

12. Schedule: of equipment's forming subject matter of agreement.

13. Schedule of hire charges. The agreement is usually accompanied by a promissory note signed by the

hirer for the full amount payable under the agreement including the interest and finance charges. So far

we discussed the legal aspect, let’s now discuss the taxation aspect of the hire purchase agreement

Conditions to protect the Hirer

1. The hirer will be allowed to enjoy quiet possession of the goods, i.e. No-one will interfere with the

hirer's possession during the term of this contract

2. The owner will be able to pass title to, or ownership of, the goods when the contract requires it

3. That the goods are of merchantable quality and fit for their purpose, save that exclusion clauses may,

to a greater or lesser extent, limit the finance company's liability

4. Where the goods are let by reference to a description or to a sample, what is actually supplied must

correspond with the description and the sample.

The Hirer's Rights1. To buy the goods at any time by giving notice to the owner and paying the balance of the HP price

less a rebate (each jurisdiction has a different formula for calculating the amount of this rebate)

2. To return the goods to the owner — this is subject to the payment of a penalty to reflect the owner's

loss of profit but subject to a maximum specified in each jurisdiction's law to strike a balance

between the need for the buyer to minimize liability and the fact that the owner now has possession of

an obsolescent asset of reduced value

3. With the consent of the owner, to assign both the benefit and the burden of the contract to a third

person. The owner cannot unreasonably refuse consent where the nominated third party has good

credit rating

4. Where the owner wrongfully repossesses the goods, either to recover the goods plus damages for loss

of quiet possession or to damages representing the value of the goods lost.

The Hirer's Obligations

1. To pay the hire instalments

2. To take reasonable care of the goods (if the hirer damages the goods by using

them in a non-standard way, he or she must continue to pay the instalments and,

if appropriate, recompense the owner for any loss in asset value)

3. To inform the owner where the goods will be kept.

4. A hirer can sell the products if, and only if, he has purchased the goods finally or

else not to any other third party.

The Owner's Rights

• To forfeit the deposit

• To retain the instalments already paid and recover the balance due

• To repossess the goods (which may have to be by application to a court depending on the

nature of the goods and the percentage of the total price paid)

• To claim damages for any loss suffered.

HOUSING FINANCE

Housing finance system is to provide

the funds which home-buyers need to purchase

their homes. This is a simple objective, and the

number of ways in which it can be achieved is

limited. Notwithstanding this basic simplicity, in

a number of countries, largely as a result of

government action, very complicated housing

finance systems have been developed. However,

the essential feature of any system, that is, the

ability to channel the funds of investors to those

purchasing their homes, must remain

In pursuance of national housing policy of central government, reserve bank of India

has been facilitating the flow of credit to housing sector. During last three years, the housing

sector has emerged as one of the sectors attracting a large quantum of bank finance. The

current focus of RBI’s regulation is to ensure orderly growth of housing loan portfolio of

banks.

“Housing finance brings together complex and multi-sector issues that are

driven by constantly changing local features, such as a country’s legal environment or

culture, economic makeup, regulatory environment, or political system”

“The purpose of a housing finance system is to provide the funds which home-

buyers need to purchase their homes. This is a simple objective, and the number of

ways in which it can be achieved is limited. Notwithstanding this basic simplicity, in a

number of countries, largely as a result of government action, very complicated

housing finance systems have been developed. However, the essential feature of any

system, that is, the ability to channel the funds of investors to those purchasing their

homes, must remain.”

“Put simply, housing finance is what allows for the production and consumption of

housing. It refers to the money we use to build and maintain the nation’s housing stock. But it

also refers to the money we need to pay for it, in the form of rents, mortgage loans and

repayments.”

“There is recognition of other relevant forms of housing finance [apart from

residential mortgage finance] such as developer finance, rental finance, or microfinance

applied to housing. Developer finance is often in the form of unregulated advance payments

by buyers, and developers sometimes provide long-term finance to buyers through instalments

sales when mortgages markets are not accessible. Microfinance for housing is typically used

for home improvement or progressive housing purposes. Loans are typically granted without

pledging properties. Although the overall impact of microfinance in housing remains limited,

this activity can represent an important source of funding for those in the informal sector.”

CONSUMER CREDIT

A DEBT THAT SOMEONE INCURS

FOR THE PURPOSE OF

PURCHASING A GOOD OR SERVICE.

THIS INCLUDES PURCHASES MADE

ON CREDIT CARDS, LINES OF

CREDIT AND SOME LOANS.

TYPES OF CONSUMER CREDIT

Credit contracts that specify the time period over which the loan or sales contract will

be repaid, the total amount due, and the number of payments and due dates on which they fall.

A form of credit that does not have an upper limit on the amount that can be borrowed

or a time limit before repayment is due.

GUIDELINES FOR IMPLEMENTATION

1. While issuing cards, the terms and conditions for issue and usage of a credit card should be

mentioned in clear and simple language (preferably in english, hindi and the local language)

comprehensible to a card user. The most important terms and conditions (mitcs) termed as standard

set of conditions, as given in the appendix, should be highlighted and advertised/ sent separately to

the prospective customer/ customers at all the stages i.E. During marketing, at the time of

application, at the acceptance stage (welcome kit) and in important subsequent communications.

2. Changes in charges (other than interest) may be made only with prospective effect giving notice of at

least one month. If a credit card holder desires to surrender his credit card on account of any change

in credit card charges to his disadvantage, he may be permitted to do so without the bank levying

any extra charge for such closure.

3. Card issuers should ensure that there is no delay in dispatching bills and the customer has sufficient

number of days (at least one fortnight) for making payment before the interest starts getting

charged.

• The card issuing bank / NBFC should ensure that wrong bills are not raised and issued to customers. In

case, a customer protests any bill, the bank / NBFC should provide explanation and, if necessary,

documentary evidence to the customer within a maximum period of sixty days with a spirit to amicably

redress the grievances

• The reserve bank of india reserves the right to impose any penalty on a bank / NBFC under the

provisions of the banking regulation act, 1949 for violation of any of these guidelines

• Right to privacy

• Customer confidentiality

• Fair practices in debt collection

• Internal control and monitoring systems

BROKING SERVICESA BROKER IS AN INDIVIDUAL OR

PARTY (BROKERAGE FIRM) THAT

ARRANGES TRANSACTIONS

BETWEEN A BUYER AND

A SELLER FOR A

COMMISSION WHEN THE DEAL IS

EXECUTED. A BROKER WHO ALSO

ACTS AS A SELLER OR AS A BUYER

BECOMES A PRINCIPAL PARTY TO

THE DEAL. DISTINGUISH AGENT—

ONE WHO ACTS ON BEHALF OF A

PRINCIPAL

Regulation for Brokers

SEBI checks out that the applicant….

1.Is eligible to be admitted as a member of a stock exchange

2.Has the necessary infrastructure like adequate office space, equipment and manpower to effectively discharge his

activities

3.Has past experience in the business of buying, selling or securities

4.Could pay the amount of fees for registration in the prescribed manner

The Persons Eligible To Become Broker

1. Individuals;

2. Partnership firms registered under the indian partnership act, 1932;

3. Institutions, including subsidiaries of banks engaged in financial services;

4. Body corporate including companies as defined in the companies act,1956

Eligibility Criteria For Brokers Corporate & subsidiaries of banks (Rs in lakh)

Particulars Capital

market

Capital Market &

Future And Option

Whole Sale

Debt Market

CM and

WDM

CM,WDM &

F&O

Minimum Paid-up

capital

30 30 30 30 30

Net Worth 100 100 200 200 200

Deposit with NSEIL 85 110 150 235 260

Deposit with NSCCL 15 15 * NIL 15 15 *

Experience Two year's experience in securities market

Education Two directors should be HSC. Dealers should also have passed SEBI approved certification test.

Track Record The Directors should not be defaulters on any stock exchange. They must not

be debarred by SEBI for being associated with capital market as

intermediaries